David Zaslav
Anjali Sundaram | CNBC
Warner Bros. Discovery shares fell on Tuesday after the company warned its 2022 earnings would come in lower than expected amid a “messy” combination of assets.
Chief Financial Officer Gunnar Wiedenfels said during the company’s first earnings call since the merger of WarnerMedia and Discovery that “unanticipated projects” and weaker first-quarter operating profit and cash flow at WarnerMedia led to the new guidance.
“WarnerMedia’s operating profit and cash flow in the first quarter were well below my expectations,” said Wiedenfels. “I currently estimate that WarnerMedia’s share of our 2022 earnings base will be approximately $500 million lower than I anticipated, but with the positive offsets of a few hundred million dollars on the Discovery side of the combined company .”
Shares are down more than 7%, trading around $19.90 a share early this morning.
While Wiedenfels declined to specifically name the unexpected projects, one of them is CNN+. Warner Bros. Discovery’s new chief executive officer, David Zaslav, decided to pull the plug on WarnerMedia’s new streaming service last week, less than a month after its launch. WarnerMedia planned to spend hundreds of millions more on the service.
“Right or wrong, management has decided to invest a majority of the incoming funds in a number of investment initiatives,” Wiedenfels said. “Looking under the hood here, CNN+ is just one example again, and I don’t want to go through a list of specific examples, but there are many clunky investments that lack what I would consider solid analytical, financial foundations and achieving the ROI hurdles I wish I had for bigger investments.”
Warner Bros. Discovery on Tuesday reported a 13% jump in revenue and steady growth in streaming subscribers for the fiscal first quarter. Results do not include first-quarter performance from WarnerMedia, which Discovery bought earlier this month.
Here are the key numbers:
- Earnings per share: 69 cents compared to 21 cents in the first quarter last year
- Revenue: $3.16 billion compared to $2.79 billion in the first quarter last year
- Discovery Streaming Customers: 24 million, up 2 million from the previous quarter
The newly combined Warner Bros. Discovery, a result of the WarnerMedia-Discovery merger that closed April 8, debuts as a pure-play media company that investors can compare to Disney, Netflix, and Paramount Global. Zaslav hopes to show Wall Street that the new company’s assets, including streaming services HBO Max and Discovery+, can compete for market share globally against the world’s biggest entertainment companies.
“We are assembling the strategic framework and organization to drive our balanced approach to growing our businesses and maximizing the value of our storytelling, news and sport,” Zaslav said in a statement. “I couldn’t be more excited about the tremendous opportunity that lies ahead of me.”
The combined WarnerMedia-Discovery company has a market valuation of more than $48 billion.
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Zaslav took his first steps towards streamlining the company’s operations last week when he shut down CNN+ just weeks after it started.
Zaslav plans to combine HBO Max and Discovery+ into one bundled streaming service. The company has not disclosed whether the new combined product will be renamed or when this change will take place.
Executives said they would not hesitate to take action, citing their decision to shut down CNN+ after just a month as an example.
In advance of those efforts, Discovery began to stop advertising Discovery+ in the first quarter. The company said that SG&A expenses fell 25% over the period, primarily due to lower marketing-related expenses for Discovery+ compared to last year’s introductory phase.
Warner Bros. Discovery said it added 2 million Discovery-related streaming subscribers in the quarter to a total of 24 million. That aligns with the 2 million in the fourth quarter.
Last week, AT&T announced that HBO and HBO Max had 76.8 million subscribers at the end of the first quarter of 2022. The announcement marked the last time WarnerMedia would be part of AT&T’s earnings report.
WATCH: Why CNN+ is shutting down